As the World Bank returns to the big dam business with the inauguration of Laos' largest hydropower project, it is coming under the scrutiny of familiar adversaries: green groups and grassroots activists.

On the eve of the Dec. 9 ceremony to celebrate the Nam Theun Two (NT2) hydropower project in the landlocked country, a coalition of activists fired a letter to the Bank's president, Robert Zoellick, citing social and environmental troubles that have surfaced with the building of NT2.

"More than 6,200 ethnic minority people relocated by the project are still struggling to achieve sustainable livelihoods three years after they lost access to their natural resources such as paddy fields, swidden fields, forests and grazing lands," argued the letter signed by 34 civil society groups and individuals from 18 countries.

The activists also drew attention to the plight of over 110,000 people living in 71 riverside villages and 101 hinterland villages who face risks due to changes to the river ecosystem. "Impacts on the downstream areas include flooding, decline of fisheries, riverbank erosion, flooding of riverbank gardens, ecosystem changes along the river and poor water quality," the letter revealed.

The letter to Zoellick - which was also addressed to Haruhiko Kuroda, president of the Manila-based Asian Development Bank (AsDB) - stems from the World Bank's decision to provide a security guarantee to the Nam Theun Two Power Co, which has French, Thai and Lao shareholders.

The Bank's decision to endorse the 1.5 billion U.S. dollar private sector project in Laos, one of South-east Asia's poorest countries, marked its return to the big dam industry following a lengthy hiatus. This break came in the wake of criticism that the Washington D.C.-based development funder received in the 2000 World Commission on Dams report, which said that its push for building large dams across the developing world has left a trail of social and environmental woes.

In fact, the Bank billed NT2 as a showpiece of its new thinking: the ability to support sustainable hydropower ventures.

"Nam Theun Two is an example of how hydropower can help support development in an economically, environmentally and socially sustainable way," says Keiko Miwa, the Bank's Laos country manager. "Our engagement in hydropower and hydraulic infrastructure is an integral part of the World Bank's approach to development, all the more so in a world with 1.5 billion people lacking access to electricity and one where the impact of climate change is increasingly being felt."

To strengthen its credentials, the Bank is highlighting the financial windfall that will boost the economic fortunes of Laos, a third of whose 5.8 million people live below the poverty line. Since the NT2's turbines came to life in March this year, the Lao government has earned 5.6 million U.S. dollars from electricity sales to Thailand, Miwa told IPS in an e-mail interview.

"(The Laotian government's revenue is) being budgeted at around 10 million U.S. dollars for the coming year," she added. "They will average around 80 million U.S. dollars per annum over the 25-year concession period."

The foreign exchange earned from NT2, with its 39-metre high dam and output of 1,000 megawatts of power, has been channelled to education, health and rural infrastructure projects. Two million U.S. dollars have been spent on education in poor districts, 1.7 million dollars on rural roads and one million dollars on public health projects, reveals the Bank.

This sale of electricity to Thailand is part of Vientiane's blueprint to lift the country out of poverty by becoming the "battery of South-east Asia." The country's mountainous terrain and artery of rivers have already seen plans being developed for 12 more large dams to export power to its energy-hungry neighbours, including Vietnam.

It is a scenario that has placed the Bank and civil society activists at odds, even though most of the planned large dam projects are backed by corporate investors from Thailand, China and Vietnam, rather than the Bank.

The Bank had hoped that the spree of planned dams in Laos would follow the "sustainable hydropower" model it offered through NT2. "The Lao Government should look for ways to apply lessons learnt from NT2 to other hydropower projects in the country," says Miwa. "Some of the lessons from NT2 should be how governments, private sector developers and the World Bank could work together to achieve similar quality results."

But the reality is otherwise, warn activists, worried that the dams being built in Laos will serve as a template for a big dam culture led by private sector investors with little interest in the environmental and social impact of these projects.

Three dams backed by the private sector in Laos are being built without disclosing their environment impact assessments (EIA), reveals Ikuko Matsumoto, Laos programme director for International Rivers, a global environmental lobby based in the U.S. city of Berkeley. "These dam builders are ignoring the sustainable model the World Bank said it was promoting with NT2."

"It seems hard for the World Bank to say something to these private sector investors even though the Bank had declared it wanted to strengthen hydropower sector standards in Laos," Matsumoto said in an interview. "These dam builders are also ignoring the concerns of NGOs (non- governmental organisations)."